Business

Why Would the UK's Top-Paid CEO Leave for a Job at Apple?

In a surprise move, Apple announced Tuesday that it had hired Angela Ahrendts, the chief executive credited with turning Burberry around, as senior vice president of retail and online stores — a newly created position. Burberry, in an equally surprising and more unconventional move, announced that its chief creative officer, Christopher Bailey, will be adding Ahrendts' duties as CEO.

The hire is a huge coup for Apple: Ahrendts, 53, is arguably the most coveted CEO in fashion — and the best-paid CEO in the UK. Since taking over the helm of the company seven years ago, annual revenue has grown to nearly $3.2 billion, up more than 250% from 2006. The price of Burberry's stock has risen even further, up 300% since her arrival to about $1,600 per share.

Ahrendts, along with Bailey, is credited with completely reinventing the legacy British house, which in 2006 had lost much of its prestige due in part to over-licensing of its brand. (As Fortune pointed out previously, retail and wholesale sales were up just 2.2% the year she arrived, underperforming the luxury sector's 13% growth.)

Ahrendts' first task was to buy back those licenses, including its fragrance licenses, and reposition Burberry as a luxury heritage brand. She also — importantly for Apple — aggressively expanded Burberry's retail footprint, both on the ground in the United States, Europe and China. Strategically, she closed many underperforming stores as well. Ahrendts also oversaw the reinvention of Burberry's online flagship, using the website less as a sales channel and more as a destination for brand-rich experiences like Art of the Trench, Burberry Bespoke and live, shoppable videos of its runway shows.

Under Ahrendts, Burberry stores have become bigger, richer and more technologically advanced, the latter more than any other participant in the luxury sector. The crown jewel in Burberry's retail empire is its 27,000-square-foot flagship store on Regent Street in London, which opened in September 2012.

As a retail experience, it's impressive. Full-length screens wrap the store, transitioning between audio-visual content displays, live-streaming hubs and mirrors. At times, models walk between video screens; at others, rain begins to pour, climaxing in a thunder crack that shows on every screen and echoes in every space in the store, including fitting rooms. RFID chips have been attached to certain clothes and accessories so that when a customer approaches one of the screens in a fitting room, specific content — say, information about a bag's stitching and craftsmanship, or a video showing how a skirt was worn on the catwalk — appears.

Burberry is now a retail company. Today, retail accounts for 75% of Burberry's business, Ahrendts revealed in a video announcing her departure from the company (see bottom).

Beyond bricks and mortar, Ahrendts is largely credited for turning Burberry into a beacon of digital innovation. She has spearheaded many high-profile consumer-facing projects, broadcasting runway shows live in 3D, and embracing platforms like Facebook, Twitter and Google+ to reach millennial consumers. More impressive is her work on the back end, incorporating systems from Salesforce and SAP to improve internal and external communications, for example. (I highly recommend watching the video below.)

There's also Ahrendts' longstanding admiration of Apple. In a 2010 WSJ. magazine profile, Ahrendts said that she didn't look to other luxury fashion houses for strategic inspiration.

"If I look to any company as a model, it's Apple," she said. "They're a brilliant design company working to create a lifestyle, and that's the way I see us."

Such credentials and enthusiasm for the company suggest that Apple could have picked no one better to run its offline and retail operations.

"This is a huge coup for Apple," Sucharita Mulpuru, a retail analyst at Forrester, told Mashable. "She's one of the true A-listers in retail and is someone that actually brings power, influence and credibility to the role. A much needed improvement from one of their last disastrous retail hires, the guy from Dixons [John Browett], which I always thought was baffling because it was one of the worst retail stores in the world."

"If you think what she has done at Burberry particularly in China this is a perfect marriage," said Justin Cooke, a former vice president at Burberry and now CEO of marketing agency Innovate7.

But why would Ahrendts, who has spent the last seven years running her own high-profile company and gracing the covers of magazines like Fortune, leave to take a senior vice president role at Apple?

"They must have given her the promise of more money than you or I could ever even imagine possessing," Mulpuru conjectures. "That's one of the only three reasons you'd give up being a CEO of an ostensibly successful company. Reason two would be if you were being pushed out or had serious conflicts with your team. Reason three may be the strongest of all: Maybe she really wants to grow and learn, and she is a bit obsessed with technology … and this could be an intellectual endeavor for her," she said, adding that Ahrendts may be particularly interested in Apple's moves into the wearable technology industry.

But perhaps, Mulpuru said, Apple lured Ahrendts with something more: "Maybe they've promised to groom her to be Apple's CEO."

Mulpuru acknowledges it's not a sure thing, of course. "There are a whole lot of people who would need to agree to that, and there are dozens of worthy competitors," she said. "I will say, she's got enough of the glossy story and panache to actually rival a Steve Jobs in that role."

How big will Ahrendts' impact be at Apple? That's difficult to tell. As Mulpuru points out, Apple stores only make up about 15% of Apple's total sales, and much of Apple's retail traffic is generated by visits to the Genius Bar (a.k.a., tech support). Perhaps that's why Apple's stock remained flat after news of Ahrendts' appointment. "What would move the price [of the stock] now is product innovation, not store innovation," Mulpuru said.

Still, Apple's retail revenues are about seven times that of Burberry, which may help explain why Ahrendts saw the Apple position as a bigger opportunity. There's a turnaround opportunity, too: As The Wall Street Journal states, Apple's average revenue per store declined 2.5% between September 2012 and June of this year.

She may be giving up being a big fish in a small pond for the opposite — but it is an awfully big pond. When Ahrendts assumes the role at Apple this spring, she will become the only woman on Apple's executive team.

Meanwhile, Burberry will have to grapple with the loss of one major leader and make due with the remaining. Investors appear uncertain whether 42-year-old Bailey, a designer by training, can handle the dual roles: Shares of Burberry were down 7.6% to $1,464 at when the markets in London closed on Tuesday.

"I am confident that, with [Chairman John Peace's] continued guidance and the executive team's support, Christopher, as one of this generation's greatest visionaries, will continue to lead Burberry to new heights," Ahrendts wrote in a statement announcing Bailey's appointment, echoing that statement in a video from Burberry, below.

Cooke, who also worked with Bailey at Burberry, echoed her statement to Mashable. "[Bailey] is a tremendous leader and motivator of people," Cooke said. "He was always so involved in the strategy, the culture and the positioning of the brand, it was a true partnership. For sure he will need great people around him to do both the CEO and his creative role, but there is an amazing team of people there and the Chairman John Peace … will ensure Christopher has everything he needs to be successful."

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